Editorial Policy

How much money needed to start a credit card?

Erica Sandberg

May 2, 2014

QHi Erica,

How much money do I need to start out a credit card? –Stefani

ADear Stefani,

Great question! There are two basic varieties of credit cards. With one, you must provide money upfront. With the other, you don't.

The first type is a secured account. You must provide a specific amount of money to the issuer to get one. The amount varies by the card and company, but in general, you'll need to pony up at least a few hundred dollars. In exchange, you'll be granted charging rights equal to (or sometimes considerably more than) that sum.Ask Erica

The money you provide is not a payment. It's the same concept as a security deposit a landlord would take from a tenant before renting a home. You'll get the cash back, (with even a bit of accumulated interest) when you close the account. However, just as a landlord would deduct the cost of a ruined wall from your security deposit when you leave, the credit issuer also reserves the right to withdraw a delinquent payment if you run up the bill and don't pay when you should.

Secured credit cards are great first cards. Because the issuer assumes little risk, it is more apt to grant secured cards to those with unestablished credit histories. Aside from the security deposit, though, you'll probably need a job, as most issuers want to be sure that you have the means to pay for what you borrow.

Another benefit for you is the security deposit itself. It's forced savings! You'll always know you have that money set aside, and if you need it, you can close the account and reclaim the funds.

The second type of card is the unsecured account. As the name implies, the issuer does not require a cash deposit. Instead, qualification is based heavily on past credit behavior and income.

While there are unsecured cards to fit most consumers' credit profiles, if you have a proven track record of being financially responsible, you will get a card more easily. The issuer will check your credit file when you apply. It will also access your credit scores, which are ratings based on the data found on those credit reports. Unsecured cards are usually best for those who have good credit or better.

Whether secured or not, be aware of extra costs for the card you are considering. Some geared to the new-to-plastic crowd come with fees, such as for the application processing. Annual fees are common, too, even with “elite” cards. Weigh what it costs to keep the card alive for the year against what you get for the money. For example, some travel cards charge an annual fee but if you fly frequently, the perks can easily make up for the outlay.

Whichever card you get, treat it well. Pay your bill on time, and pay in full every month. Don't use your card as a long-term loan. Keep your cards' debt below 30 percent of the credit limit. These steps will improve your credit score over time, improving your chances at getting better cards with higher limits.

And remember, what you do with your first card will be a part of your record for many years to come.

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